A recent mediation that I conducted involved the rights of a tenant to renew under an option that provided that the renewal or extension was to be on the same terms as the original lease excluding a right of further renewal and "rent was to be negotiated and agreed on." The tenant claimed that there was a history of past dealings under earlier leases that required the landlord to negotiate in good faith to establish a renewal rent. Other arguments were made based on some real estate cases that once a contract is made, there is a requirement to act in good faith to conclude finality to the transaction. The landlord wanted to demolish the property and there was no demolition clause in the lease. The Landlord took the position that an agreement to agree is no agreement at all and good faith does not come into it at all.
The landlord provided case law that holds that the language as above does not create an enforceable obligation to bargain in good faith. The case law indicates that to avoid the problem of enforceability, there needs to be some parameters or criteria for determination of the renewal rent and preferably as well, a process for resolving disagreement. The cases seems to say that for enforceability, the lease must include a formula or benchmark for determining the rent. Even stating that the parties will negotiate in good faith without a benchmark is not good enough since the parties may believe they are each acting in good faith but still be miles apart on the amount of the rent. The leading case is EdperBrascan Corp. v. 117373 Canada Ltd. (2000) 50 O.R. (3d) 425, the headnote of which states that the law does not recognize the duty to negotiate in good faith where the negotiation is to take place within an existing contract. The case contains a good summary of the law.
Originally published November 2014
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